Helios Underw Regulatory News (HUW)

Helios Underwriting plc

("Helios" or the "Company")

Final results for the year ended 31 December 2022

Increased Retained Capacity Provides Strong Platform for Growth

Helios, the investment vehicle which builds shareholder value through exposure to Lloyd's, is pleased to announce its audited final results for the year ended 31 December 2022. Performance has been robust against the backdrop of another challenging year for the global Lloyd's market and Helios is well positioned to maximise the opportunities on offer in this disciplined market.

Highlights

· Gross written premium increased by 131% to £244m (2021: £106m) reflecting the increase in the capacity portfolio

· Retained capacity for 2023 open underwriting year increased by 34% to £238.0m (2022 year of account: £171.9m)

· Net tangible asset value of £1.52 per share (2021: £1.57 per share)

· Total comprehensive loss for the year of £1.3m (2021: +£4.9m)

· 117% growth in net earned premium (2021: 42%)

· Final dividend of 3p per share is being recommended (2021: 3p)

· Pro forma combined ratio of 93%

· Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio

· Board augmented and strengthened with additional experience and expertise

o  Martin Reith appointed Chief Executive

o  Nigel Hanbury will continue to provide guidance as Executive Deputy Chairman

o  Michael Wade nominated Chairman Designate to be appointed following the AGM

Helios Group Summary Profits

Martin Reith, Chief Executive, commented:

"We have successfully steered the Company through another challenging year with 2022 proving to be one of the most difficult in recent memory following a string of unforeseen events, including interest rate hikes, natural disasters and Russia's invasion of Ukraine.

"Whilst the headline results show a pre-tax loss, that should not obscure the underlying achievements during the period. Our retained capacity grew by 34% in 2022 to £238m, during an active year of acquiring blue-chip syndicates across the volatility spectrum, which we expect will yield attractive underwriting returns in the years to come.

"Despite the wider macro-economic conditions, we remain confident that Helios is well positioned to capitalise on the current hard market and deliver significant returns for shareholders, thanks to the improving reinsurance market conditions, our enhanced positioning and the increasingly positive landscape for underwriting."

For further information, please contact:

Helios Underwriting plc

Numis (Nomad and Broker)

Buchanan (PR)

About Helios

Helios provides a limited liability direct investment into the Lloyd's insurance market and is quoted on the London Stock Exchange's AIM market (ticker: HUW). Helios trades within the Lloyd's insurance market writing approximately £297m of capacity for the 2023 account. The portfolio provides a good spread of business being concentrated in specialty insurance and reinsurance. For further information please visit www.huwplc.com.

Chairman's statement

Total comprehensive loss of £1.2m (2021 profit: £4.9m)

Net tangible asset value at £1.52 per share (2021: £1.57)

A final dividend of 3p per share is being recommended (2021: 3p)

In summary

• Gross premium written increased by 131%

• Total comprehensive loss of £(1.3)m (2021: profit of £4.9m)

• Net tangible asset value at £1.52 per share (2021: £1.57)

• Pro forma combined ratio of 93%

• A final dividend of 3p per share is being recommended (2021: 3p)

• Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio

The results for the year ended 31 December 2022 show a total comprehensive loss for the year of £1.3m (2021: a profit of £4.9m), and the net tangible asset value of the Group is £1.52 per share (2021: £1.57). Although these results show a pre-tax loss, they do not reflect the successful trading that has taken place over the last few years. Moreover, the results have been skewed by the steps Helios has taken to position our portfolio to yield significant returns from our retained capacity in this exciting and disciplined market.

Our retained capacity grew substantially into 2022 and also into 2023; however, only a proportion of these premiums are earned in the first 12 months and the expected profits are earned in the succeeding years. Add in the impact of the macro-economic environment, interest rate hikes and the mark to market accounting principles, natural catastrophe losses including Hurricane Ian and Russia's invasion of Ukraine - which have all served to dampen our returns. Nevertheless, the Board believes that we are at the point of the underwriting cycle where the prospects for underwriting profitability are much improved and the better overall landscape for underwriting is likely to be extended following the change in the reinsurance market conditions at the end of last year and continued market discipline.

It is important to understand that there is a three-year lag in the recognition of underwriting profits in our accounts so at the moment we are impacted by the growth of the Helios share of the capacity portfolio in 2022, which is showing a loss at 12 months. This loss on the larger portfolio has distorted overall results as the contribution from the profits recognised in the 2020 and 2021 underwriting years have been overshadowed.

Lloyd's has announced a combined ratio of 91% and is expecting better results in the next few years, particularly as the prospective investment returns are expected to make a significant contribution in the future. The Helios portfolio pro forma combined ratio of 93% has broadly matched the performance of Lloyd's.

Our strategy is to continue to build a "blue chip" portfolio of underwriting capacity and during this year the Helios-retained capacity fund has grown from £172m to £238m.

Approximately half of the fund is comprised of freehold capacity on well-established syndicates at Lloyd's. When these syndicates wish to grow their businesses, the existing owners of the capacity have pre-emptive rights to receive additional capacity pro rata to the scale of increase in the underlying business. The additional capacity is free and the value of this additional capacity increases our asset valuation but additional capital is required to meet funds at Lloyd's. The small reduction in overall auction prices last year has reduced the benefit of the incremental value of the pre-emption rights.

Earlier in the cycle we reduced underwriting risk through "quota share reinsurance" which transfers the underwriting risk to a third party. In past years, as much as 70% of the fund has been passed to reinsurers for which Helios receives a fee. We are now at the stage in the cycle where the market has become more profitable and so the underwriting risk retained by Helios has been increased and the amount ceded to reinsurers has reduced to 26% of the overall portfolio. We have also been able to reduce risk through stop loss policies to protect against large unexpected losses. To date we have not needed to draw on these facilities.

Helios actively manages capital. We have a number of dials we can turn to increase or decrease our exposure. Fee income remains a core and attractive earnings stream that complements our underwriting returns. As the market cycle evolves, we evaluate opportunities to retain underwriting exposure or cede risk for fees.

There is no doubt that over the years the nature of the underwriting risk has changed and frequency of large losses is up, and in addition, we have to contemplate the ravages of climate change, a pandemic and the Russian invasion of Ukraine.

Summary financial information

A further capital raising was completed last year to raise £12m largely from a new institutional investor. These funds have been used to fund the growth of the capacity fund.

Dividend

The Board recommends a 3p dividend in line with the existing policy.

There will be the option to take new ordinary shares in lieu of the dividend.

The payment of this dividend reflects the Board's confidence in future cash flow despite the pre-tax loss this year.

The opportunity

Helios represents an opportunity for investors to access an uncorrelated asset class across a managed portfolio. Capital is deployed across a diversified portfolio of syndicates offering a favourable risk/return. Private capital is a significant feature of the Lloyd's market, representing approx. 8.5% of market capacity for 2023 (or £4bn). Lloyd's has clearly stated that it values private capital but Lloyd's 2025 vision states that it must be "re-energised and provided on a more flexible and efficient basis". Helios is positioning itself to be that efficient access point and is uniquely able to drive third party investment into Lloyd's.

The future strategy will exploit this opportunity to bring increased predictability to both cash flow and dividends. This is an exciting time for our Company and we look forward to many years of profitable trading despite the dire economic outlook that engulfs the world at this time.

Board changes

I am delighted in the changes to the leadership roles at Helios.

I welcome the appointment of Martin Reith as Chief Executive as his extensive experience in the Lloyd's market in building successful businesses will be invaluable to Helios in the future.

I am delighted that Nigel Hanbury has agreed to become Executive Deputy Chairman and would like to thank him for his contribution to the business as Chief Executive since 2012. He built the capacity fund to £297m during the soft market, taking advantage of the improved market so that Helios now has the opportunity to deliver excellent growth in shareholder value. We expect to be able to benefit from Nigel's extensive experience in the management of third party capital at Lloyd's in the future.

I have been a Board member since Helios was founded in 2007 when it was listed on AIM and have latterly served as Chairman. It is the appropriate time for me to retire and I am delighted that Michael Wade has agreed to become a Director and take over as Chairman at the end of the Annual General Meeting in June.

Michael Wade has enjoyed a long career at Lloyd's including forming one of the first Lloyd's corporate capital vehicles in 1993 (CLM Insurance Fund plc) and later acted for UK pension funds via Rostrum Group investing in listed Lloyd's firms. He has served on the Council and Committee of Lloyd's. Currently, Michael is also non-executive chairman of Howden Tiger Capital Markets UK and a senior advisor to Mitsui Sumitomo Insurance. I am sure that Michael's wealth of experience in the insurance world will benefit the Company in the future.

I congratulate the executive team in delivering a top class portfolio of upper quartile investments in leading syndicates. In addition, your Non-executive Directors have played an important part in developing the future strategy.

Future prospects

We envisage further growth over 2023 and into 2024 and will position the portfolio accordingly. We expect the majority of the syndicates we support to pre-empt in order to benefit from the attractive rating environment and market discipline. In addition, we are in discussions with a number of new opportunities for Helios that will give us further diversification.

It is likely we shall seek support from third party capital to allow us to maximise these opportunities for appropriate fees and commissions. We believe this will help us to continue to deliver superior returns and generate repeatable income while managing volatility.

Michael Cunningham

Non-executive Chairman

25 May 2023

Chief Executive Officer's review

Net tangible asset value £1.52 (2021: £1.57)

Rate increases since 2017 in excess of 55%

117% growth in net earned premium (2021: 42%)

93% pro forma combined ratio for the overall portfolio is in line with the overall Lloyd's market combined ratio of 91.9%

Helios is perfectly positioned to maximise the opportunities available in the market and Lloyd's remains well positioned to deliver profits:

• Lloyd's financial position, with a solid capital base and robust risk management framework has never been better. This enables the market to manage risks effectively and respond to unexpected events

• Lloyd's reputation for innovation and adaptability means that it is quick to embrace new technologies such as the use of data analytics and machine learning to assess risk and provide more accurate pricing and enriched decision making

• Lloyd's global reach is unparalleled with a presence in more than 200 countries and territories allowing access to a wide range of customers and markets

A constant focus from Lloyd's over the past 18 months or so has been the requirement for syndicates to ensure risk adjusted rate change keeps apace with inflation. As a consequence, price increases rather than a major drive for exposure growth have been a particularly strong driver of recent premium growth.

Across the market, a high proportion of syndicates reported a year on year deterioration in profitability and results at individual syndicate level for some were more volatile in a year marked by significant cat events. Historically we have seen reserve redundancy and subsequent releases as losses have perfected over time. We are confident we shall see similar trends.

Helios remains a highly efficient and unique business that offers investors exposure to a diversified portfolio of top performing syndicates.

Helios is delighted that Martin Reith has been appointed as Chief Executive Officer ('CEO'). Nigel Hanbury will remain on the Board as Executive Deputy Chairman, so that the Board can continue to benefit from his leadership and his extensive knowledge of Lloyd's.

Q&A with new CEO Martin Reith

Plans for the company over the next year and beyond:

Helios has been positioned to maximise the opportunities this market has to offer. Our portfolio in 2023 has a larger retained capacity (up 38% from 2022), across a well balanced volatility managed portfolio. We are witnessing market discipline and pricing adequacy that should yield some attractive underwriting returns. Beyond this year, we intend to grow our capacity over both freehold and relationship syndicates always with an eye to backing the the best syndicates we can access. We shall also look at ways to shift the quality of our earnings as we increase the fees and commissions we can generate from our tenancy positions.

What experiences do you bring to Helios:

I started my career at Lloyd's in 1984 and have had significant experience across underwriting, management and leadership. In 2001, I founded and was the CEO of Ascot Underwriting which continues to be a force in the market today. I have had experience raising capital, I have sat on the Group Holding's Board of AmWINS Group Inc, a major US wholesale broker, I have also been involved with an ILS fund. I believe I therefore bring a broad range of skills and experience to the role. In fact I feel it is a rather suitable evolution. I may not longer be at the coal face assessing and pricing risk, rather I am seeking to support those that I believe do an outstanding job in this area.

What do I feel are Helios' biggest achievements for this year:

Under Nigel's leadership, we have curated an outstanding portfolio in the most capital efficient manner. We have increased our retained capacity in order to benefit from the exceptional market conditions. We have also sought to broaden the syndicates we support and in turn the lines of business we are exposed to such that we now participate on risks that haven't naturally gravitated to Lloyds. Across the majority of our key metrics, we are showing we are receiving more premium but for less exposure. Risk adjusted rate change is key to ensure we keep apace with inflation in addition to the pricing correction.

How has the outlook for (re)insurers changed because of the recent macroeconomic environment:

There are two key aspects: inflation and interest rates. It is vital the impact of inflation is not underestimated and that appropriate steps are taken to ensure pricing keeps ahead of inflation. Across our portfolio we have sought to understand how each syndicate is dealing with this issue. In addition, reserves need to be checked and claims settled quickly to ensure inflation does not undervalue the held reserves.

To help dampen inflation, we have seen the increase of interest rates. This is most welcome to allow improvement in the returns on the assets held by syndicates and by Helios. Now we are hopeful that we shall see underwriting profits and investment returns generate shareholder value.

What are the biggest opportunities for Helios:

Helios has a unique position in the market. It is a highly regarded business that has access to an extraordinary portfolio. Through management's curation, we have historically outperformed the market. We are ideally positioned to maximise the rewards of this market - our efficient capital ratio, our volatility management, our wish to increase repeatable non-risk fee income and that we are often sought out to validate and seed fund new syndicate starts, sets us aside. We are also the only publicly listed consolidator of private capital in Lloyd's and we shall continue to build on our access in this way.

As we enjoy the opportunities of a hard market, it should be no surprise that our portfolio is at the cutting edge of shaping and driving market discipline. That is how we have positioned Helios.

Closing remarks:

I am very excited to be leading Helios and my thanks to Nigel Hanbury and Arthur Manners for their support. They have built a fabulous business and I am honoured to help write the next chapter. I am delighted that Nigel has agreed to take up the role of Executive Deputy Chairman. He and I will work very closely over the coming months. Arthur remains as CFO and I look forward to working in lock-step with him.

Strategy

The building of a portfolio of participations on leading Lloyd's syndicates remains the strategic objective of the Group. During 2022, the key developments were:

• building the portfolio of capacity to £297m for 2023, taking up freehold capacity offered for nil cost by way of pre-emptions amounting to £21.7m and building stakes on syndicates with good prospects offering tenancy capacity;

• maintaining the quality of the portfolio and getting access to the better-managed syndicates at Lloyd's;

• taking advantage of the underwriting cycle and increasing the capacity retained by Helios as the prospects for improved underwriting margins remain;

• providing an income generating investment of Lloyd's underwriting capacity, thereby generating returns in capital value and dividend income for shareholders;

• providing a cost-efficient platform for participation at Lloyd's, benefiting from no profit commission potentially payable to Lloyd's members' agent and taking advantage of increased scale and, therefore, cost efficiencies;

• improving shareholder returns by use of excess of loss reinsurance funds at Lloyd's arrangements; and

• growth of the capacity fund to be funded by third party capital for 2024.

Quality of portfolio

The portfolio has been positioned to maximise underwriting returns and the favourable market conditions we are enjoying in 2023 and beyond. There has been increased focus and curation from the 2022 to 2023 portfolio with an emphasis on:

• reducing exposure to natural catastrophe;

• growth into specialty lines;

• targeting risks and classes that diversify the portfolio;

• building relationships with syndicates that attract non-correlating exposure; and

• identifying new relationship capacity with excellent growth prospects.

As a consequence, we can report favourable development across all our key exposure metrics with an increase in our direct insurance premium and a reduction in the reinsurance portfolio. While we continue to work with our reinsurers to manage the volatility ofour portfolio, the amount we have decided to retain is up some 38%, and our overall capacity into 2023 up by 25%, to just shy of £300m.

We have created new relationships with syndicates that accept risks that don't naturally gravitate to the London market and, in turn, this has allowed us to develop greater ESG awareness and opportunity.

The Lloyd's market is in robust shape with discipline and pricing shaping an impressive performance. While a few lines have reported a slowing in price correction, the drive to implement risk adjusted rate change and simple pricing correction remains strong. As a consequence, price increases, rather than a major drive for exposure growth, have led the substantial premium growth the market has witnessed.

Add "uncertainty" into the mix and the demand and desire for buyers to buy comprehensive cover in a market exercising judicious capacity deployment, all of this leads to increased demand.

Helios' portfolio consists of some of the top-performing and market-leading syndicates that help shape and drive demand. We are ideally and deliberately positioned to maximise the returns this market has to offer.

We continue to focus ruthlessly on the best syndicates. The portfolio now comprises an even split between syndicates where we have "freehold rights" - rights to participate pro-rata on the future growth of the syndicate and "tenancy rights" where we are offered participation on an annual basis.

FREEHOLD CAPACITY

TENANCY CAPACITY

Freehold syndicates - Participations in syndicates managed by these managing agents represent shares in the well-established and better-managed businesses at Lloyd's. We strive to acquire LLVs with portfolios that comprise these quality syndicates, thereby having to pay the average auction prices to get access. This proportion of the portfolio provides diversified exposure to syndicates that have experienced underwriting teams, well-established portfolios where each management team allocates capital to the business areas with the better risk adjusted returns.

Tenancy syndicates - We have a mix of longstanding relationship capacity and those syndicates where we are supporting for the first time. In reality, while we hope to have secured capacity over the long term, this is opportunistic capacity that we have identified and that adds to our overall portfolio construction.

Curation of the portfolio

The table shows the movement in the portfolio to the opening position for the 2023 year of account. The portfolio has been actively managed during the year to achieve the following:

Pre-emptions - £37m - the syndicates' supported grew their businesses on average by 16% for the 2023 year of account and we took up these pre-emptions for no cost.

New syndicates - £49m - new participations on four syndicates for 2023: Arch, Flux, CFC, MIC Global.

Auction sales - £32m - sold capacity on Beazley 623 and Tokio Marine 510 to get better balance in the portfolio and to raise some cash. In addition, we decided to reduce our exposure on syndicate Cathedral 2010, to reduce the catastrophe exposure and come off Argenta syndicate 2121 entirely.

Auction - buy - £15m - we again took advantage of lower-than-expected prices on syndicates to purchase £10m of capacity on the motor syndicate 218 - which will benefit from the improved investment returns in the future.

Increase in tenancy - £22m - increased participations on syndicates Beazley 5623, Apollo 1971, Apollo 1960 and Dale 1729.

Acquisitions - £5m - the capacity acquired supplemented the existing freehold capacity participations.

Discarded capacity - £33m - to reduce the catastrophe exposure, we came off most of the SPA Cat syndicates (6104, 6107, 6117) and reduced our participations on syndicates with higher-than-average exposure.

Portfolio underwriting result

The portfolio achieved a pro forma combined ratio of 93% in comparison with the combined ratio for the Lloyd's market of 91.9%. The combined ratio has been calculated by applying the 2022 Helios capacity to the 2022 combined ratios of syndicates supported to estimate a pro forma Helios combined ratio. This removes the distortion of the significant growth in the portfolio to demonstrate the underlying quality of the portfolio.

The chart shows quartile ranking of the Helios supported syndicates within the universe of all syndicates at Lloyd's. It shows that over 50% of the Helios portfolio is ranked in the first and second quartile of Lloyd's syndicates.

Quartile 1 - 22%

Quartile 2 - 36%

Quartile 3 - 16%

Quartile 4 - 26%

The calendar year underwriting profit from the Helios retained capacity for 2022 has been generated from the portfolio of syndicate results from the 2020 to 2022 underwriting years as follows:

Portfolio underwriting result

The strategy to take advantage of the excellent underwriting conditions, to grow the capacity portfolio and to increase the Helios share of the capacity portfolio has impacted the overall result for 2022 for two reasons:

a) The growth in the capacity portfolio to £238m for 2022, a 97% increase from the 2020 portfolio has resulted in the 2022 underwriting year loss at the 12-month stage having a disproportionate impact on the Helios share of the result.

b) Helios' increased share of the portfolio, increasing to 75% for the 2022 underwriting year, has also had a negative impact on the overall result for calendar year 2022.

The 2022 underwriting year result at 12 months represents an accounting loss of 4.1% (2021: loss of 3.9%) on the retained capacity of £178m (2021: £99m). The Lloyd's market incurred major losses of 12.7% (2021: 11.2%) of net earned premium so a further year of significant major losses for the market. Major claims in 2022 for the insurance industry is estimated to amount to $130m and include natural catastrophe losses such as Hurricane Ian, Hurricane Fiona and Australian Floods, as well as non-natural catastrophe losses such as those arising from the conflict in Ukraine. Two supported syndicates had material exposure to the natural catastrophes during the year and these losses have been fully recognised in the year.

The negative investment returns on the assets managed by the syndicates have arisen from mark-to-market accounting rules requiring them to mark the value of assets down to reflect prevailing market conditions - in this case, rising interest rates. However, this loss is expected to reverse out in 2023 as higher interest rates lead to greater investment returns on the syndicate assets.

During 2022, the 2020 underwriting year mid-point profit improved to a profit of 3.1% (2021: profit of 1.0%), outperforming the average of the Lloyd's market by 2.2%. Given that losses from COVID-19 of 10% of capacity for the Helios portfolio have predominantly fallen on the 2020 underwriting year, the overall profit is encouraging. The mid-point estimate for the 2021 underwriting year at 31 December 2022 is a profit of 2.4% (2021: profit of 1.9%).

We would expect the GAAP earnings in 2023 from the 2022 and 2021 underwriting years to make a significant contribution to Helios' earnings both from the profitability in the underlying portfolios and as positive investment returns are recognised.

We would expect the gap in relative performance to narrow over the next 18 months as it has done in the past. The syndicates supported by third party capital have been more conservative in their published estimates over the 36 months to the close of the year of account due to the transparency of each syndicate result.

Other income

Helios generates additional income at Group level from the following:

The investment returns on the assets managed by the supported syndicates are included in the overall portfolio underwriting result.

Helios' share of the syndicate investments incurred a loss in the year of 2.2% as interest rates increased and this has masked the improvement in underwriting margins. Group investment funds remained in cash and targeted investments were made, which made a small positive return. These funds have now been fully invested in a short duration bond portfolio. The Group's share of the syndicate investments is expected to continue to increase to reflect the growth of the capacity portfolio.

Fees from the quota share reinsurers reflect the fee payable on the funds at Lloyd's provided and profit commission relating to the 2020 and 2021 year of account has been accrued.

Total costs

The costs of the Group comprise the operating expenses and the cost of the stop loss protection bought to mitigate the downside from large underwriting losses.

The reinsurance costs include the stop loss premiums and the cost of the excess of loss funds at Lloyd's facilities that are expected to improve the returns generated by Helios' shareholders. The stop loss costs incurred in 2022 have been partially deferred to reflect the exposure of the portfolio that extends over two years. £22.7m of additional underwriting capital was sourced in 2023 through a reinsurance contract at a cost of £2.0m.

The operating costs include the transaction costs of a material acquisition that did not proceed. The internal infrastructure of the business will be expanded in 2023 given the overall growth of the fund.

Net tangible asset value per share

The growth in the net asset value per share remains a key management metric for determining growth in value to shareholders.

The capital employed per share, the assets used to generate earnings which exclude the deferred tax liability on capacity value is as follows:

The deferred tax provision on capacity value could potentially be incurred should the entire portfolio be sold. Given the strategy of the Group to grow the capacity fund, there is no intention to realise the full value of the portfolio. The capital employed by share is 18p (2021: 22p) higher than the net tangible asset value per share.

The value of capacity is subject to fluctuation and reflects the activity in the capacity auctions held in the autumn of each year.

Capacity value

The value of the portfolio of the syndicate capacity remains the major asset of the Group and an important factor in delivering overall returns to shareholders. The growth in the net asset value ("NAV"), being the value of the net tangible assets of the Group, together with the current value of the portfolio capacity, is a key management metric in determining growth in value to shareholders.

The average price per £ of freehold capacity has remained at 41p per £ of capacity as the pre-emptions offered increased the value of the portfolio while the decline in average prices partially offset this increase. In addition, the relationship capacity on "nil value"/non-traded syndicates continued to grow as Helios is able to demonstrate long term commitment to providing third party capital to growing syndicates.

The Board recognises that the average prices derived from the annual capacity auctions managed by the corporation of Lloyd's could be subject to material change if the level of demand for syndicate capacity reduces or if the supply of capacity for sale should increase.

A sensitivity analysis of the potential change to the NAV per share from changes to the value of the capacity portfolio is set out below:

Each 10% reduction in the capacity values at the 2023 auctions will reduce the NAV by approx. 6p per share (2021: 7p per share). The increase in capital base has reduced the impact on NAV per share from changes in capacity value. Any reduction in the value will be mitigated by any pre-emption capacity on syndicates that have a value at auction.

Acquisition strategy

Helios acquired three LLVs in 2022 (2021: 28) a reduction in the activity of the previous year following the uncertainty created by the war in Ukraine. We will continue to approach the owners of LLVs directly, which has the advantage of:

• raising the profile of Helios as a potential purchaser of LLVs;

• allowing owners of LLVs who were potentially considering ceasing underwriting at Lloyd's to have the opportunity to realise the value of their investment quickly;

• allowing vendors a tax efficient exit if they wish to cease underwriting; and

• being an ongoing exercise to offer owners of LLVs an alternative to investing at Lloyd's by taking Helios shares as part of the consideration.

The ongoing conflict in Ukraine has created material uncertainties in establishing fair value of an LLV, and, therefore, £0.5m of the agreed consideration has been deferred pending the final 2021 year of account result of syndicates within the portfolio acquired that could have material exposure to events in Ukraine.

During 2022, a further three LLV's were acquired.

The three (2021: 28) acquisitions in 2022 were purchased for a total consideration of £5.7m (2021: £27.3m), of which £2.6m (2021: £18m) was attributed to the value of capacity acquired. The marginal result for 2022 for Lloyd's has delayed the recognition of profits in the LLVs and consequently some positive goodwill has been recognised. We will continue to build on the quality of the capacity portfolio as it is essential to acquire and retain the participations on the better-managed syndicates.

Reinsurance quota share

The use of quota share reinsurance to provide access to the Lloyd's underwriting exposures for reinsurers and private capital has not been expanded in 2021. The core of the panel of reinsurers remains XL Group plc and Everest Reinsurance Bermuda Limited.

This reinsurance has successfully reduced the exposure of Helios shareholders in recent years and assists in the financing of the underwriting capital. Helios has again reduced the proportion of the capacity portfolio ceded for the 2023 year of account.

We expect to increase the participation of third party capital to support the growth of the capacity fund in 2024.

Risk management

Helios continues to ensure that the portfolio is well diversified across classes of businesses and managing agents at Lloyd's.

The biggest single risk faced by insurers arises from the possibility of mispricing insurance on a large scale. The recent correction in terms and conditions and the actions of Lloyd's to force syndicates to remediate underperforming areas of their books demonstrate the mispricing that has prevailed over the past few years. The results of this remediation work by Lloyd's is starting to be reflected in the results announced by the syndicates supported.

These management teams have weathered multiple market cycles and the risk management skills employed should reduce the possibility of substantial under-reserving of previous year underwriting. There is acceptance that catastrophe exposures were generally under-priced and hence the syndicate managers have been reducing their catastrophe exposures. The broad reinsurance market correction is a fundamental shift in risk versus return metrics presenting opportunities to pivot the portfolio in the future.

We assess the downside risk in the event of a major loss through the monitoring of the aggregate net losses estimated by managing agents to the catastrophe risk scenarios ("CRS") prescribed by Lloyd's.

The individual syndicate net exposures will depend on the business underwritten during the year and the reinsurance protections purchased at syndicate level.

The aggregate exceedance probability ("AEP") assesses the potential impact on the balance sheet across the portfolio from either single or multiple large losses with a probability of occurring greater than once in a 30-year period.

In addition, Helios purchases stop loss reinsurance for its 80% (2022 YOA: 75%) share of the portfolio with an indemnity of 10% of its share of the capacity and a claim can be made if the loss for the year of account at 36 months exceeds 7.5% of capacity.

The impact on the net asset value of Helios from the disclosed large loss scenarios are as follows:

The assessment of the impact of the specified events is net of all applicable quota share, stop loss reinsurance contracts and corporation tax but before the likely profits to be generated from the balance of the portfolio in any year. Notwithstanding the reduction in the natural catastrophe exposure in the 2023 portfolio, the impact on net assets has increased as the retained capacity has increased. The similarity on the impact on the net assets from a loss arises as the expected loss will result in only a net retention from the stop loss of 7.5% of capacity.

Capital position

The underwriting capital required by Lloyd's for the Helios portfolio comprises the funds to support the economic capital requirement of the portfolio and the solvency II adjustments is as follows:

Environmental, social and governance responsibility

On 23 March 2023, the Board approved an environmental, social and governance (ESG) policy statement. Helios offers investors exposure to a diversified portfolio of syndicates at Lloyd's of London. As a consequence, Helios is inexorably aligned to the approach Lloyd's takes with regard to the society as a whole in addition to those adopted by the various managing agencies.

As we construct our portfolio each year, considerable emphasis is given to understanding individual syndicate actions with regard to ESG. This includes an understanding of the risks contemplated as well as the ESG initiatives adopted within the respective businesses and their management teams.

We support the ESG strategy of Lloyd's, who has outlined their ambition to integrate sustainability into all of Lloyd's business activities. Lloyd's has stated that embedding ESG across the market and corporation is a top priority and is interwoven with their purpose of creating a better world. Helios fully supports Lloyd's approach and oversight of the market. More information can be found at: https://www.lloyds.com/about-lloyds/responsible-business/esgreport2021.

Helios is committed to diversity and maintaining an inclusive workplace culture where everyone of any background is able to contribute in full to the success of our business. Helios believes that a commitment to protecting diversity is not only morally imperative but an excellent business strategy. While Helios' workforce is very small, we actively engage with our outsource partners, ensuring our ESG principles are maintained. In addition, Helios is expecting to be a signature to the UN Principles For Responsible Investment (www.unpri.org) and we strive to adopt the six key principles for responsible investment.

The Board is committed to a high standard of corporate governance and is compliant with the principles of the Quoted Companies Alliance's Corporate Governance Code (the "QCA Code"). The Directors have complied with their responsibilities under Section 172 of the Companies Act 2006 which requires them to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole.

Martin Reith

Chief Executive Officer

25 May 2023

Lloyd's Advisers' report - Hampden Agencies

Hard insurance market conditions persist - reinsurance now a genuinely hard market for the first time since 2006

The hard insurance pricing environment continued in 2022 in most classes with Lloyd's reporting rate increases for 20 consecutive quarters, which have compounded over this period by 44.5%. At 1 January 2023, the reinsurance renewals were the most challenging for buyers in a generation against a backdrop of 2022 being the second year in succession suffering insured losses from natural catastrophes of well above $100bn, while rising bond yields during 2022 curtailed reinsurers' risk appetite owing to mark to market losses on their investment portfolios.

The cycle in insurance and reinsurance is a classic supply led cycle with pricing driven more by changes in supply than demand. The impact of inflation increased demand from insurers for risk transfer to reinsurers with additional limit required of up to $30bn. Combined with a change in the supply of capital, which was reduced by up to $50bn, the supply/demand imbalance at 1 January 2023 was estimated at $50bn to $80bn by US insurance analyst Dowling & Partners.

The impact of the supply/demand imbalance led to a hard reset of the property catastrophe reinsurance market with several years' worth of re-underwriting being achieved in a single renewal at 1 January 2023. A re-acceleration of property insurance rate rises has followed with insurers having to bear not only higher reinsurance rates but tighter terms and conditions. US property insurance rates have risen by 17% in Q1 2023 compared with 11% the previous quarter according to Marsh, the world's largest broker.

Helios gross written premium growth

Helios reports strong profitable growth in gross written premium to £244.6m for 2022 (£106.1m in 2021). In a period of strong underwriting conditions, Helios' growth in gross written premium was 130.6% compared with Lloyd's growth in the same period of 19.0%. During 2022, in addition to rate increases, growth benefited from premium increases owing to inflation particularly in the property classes as well as foreign exchange movements with the US dollar gaining by 11.1% against pound sterling ending the year at $1.20:£1.

In common with other suppliers of third party capital, Helios has the agility to optimise its returns over the insurance cycle by growing strongly in the current hardening market conditions through acquisitions of corporate members, negotiating leasehold participations on syndicates and acquiring capacity at Lloyd's annual capacity auctions with portfolio allocation decisions being taken in house by Helios' management team. Helios' growth has been significantly above the industry average, seeking to maximise premium volume when rates are rising. Since the bottom of the soft market in 2017, Helios' gross written premium has grown by just over seven fold.

Over the past five years, Helios' calendar year net combined ratio (before corporate costs) has outperformed Lloyd's by three percentage points a year, with an average combined ratio of 97.5% compared with 100.5% for the overall Lloyd's market. The chart below shows the combined ratio of the Helios portfolio compared with Lloyd's from 2018 to 2022.

However, for the second year running, Helios underperformed Lloyd's net combined ratio, which was 91.9% in 2022 (93.5% in 2021), the best year since 2015, owing to the new business expense strain of increasing gross written premiums which were not fully earned in 2022. Helios' net combined ratio was 96.4% in 2022 (93.9% in 2021). The growth in the capacity portfolio in 2022 has had a disproportionate impact in the combined ratio.

Helios' combined ratio compares favourably with both insurance and reinsurance peer groups. A preliminary estimate of United States property/casualty insurers by AM Best was a combined ratio of 102.7% in 2022, while a basket of 19 reinsurance companies in reinsurance brokers Aon's Reinsurance Aggregate reported an average combined ratio of 96.2% in 2022.

2020 account closed year

With the closure of the 2020 account at 31 December 2022 the Helios portfolio has outperformed Lloyd's for the 12th successive three-year account result, reporting a profit of 3.1% on capacity compared with the Lloyd's market average result which was a profit of 0.9% on capacity.

Covid-19 claims for Helios cost 3% of capacity. Covid-19 claim estimates overall were stable over 12 months, though property reinsurance losses from Covid-19 deteriorated. Lloyd's maintains strong reserves with a market aggregate IBNR of £0.7bn (22% of net ultimate loss of £3.2bn).

The improvement in the final 12 months was lower than in previous years, owing to a deterioration in the investment return largely from unrealised mark to market losses in syndicates' bond portfolios.

2020 was another year of above average catastrophe claims. A very active hurricane season with a record number of named storms only caused moderate insured losses of USD 20bn, including Hurricanes Sally and Laura. The year was also hit by Covid-19 claims, a $7bn mid-west Derecho and the Texas freeze, Uri, which occurred in February 2021 with losses going back to the 2020 Account. Swiss Re reported that global insured losses from natural catastrophes were $81bn in 2020 with an additional $8bn from man-made disasters. Total insured losses of $89bn made 2020 the sixth highest on record with 70% of the natural catastrophe insured losses resulting mostly from severe convective storms and wildfires. These events, known as secondary perils, have increased in frequency and are associated with the effect of climate change.

2021 account open year

The 2021 open year estimate is a profit of 2.4% of capacity at Q8 (Lloyd's market average is a profit of 4.2% of capacity) and includes estimates from the 28 acquisitions made by Helios during 2021.

2021 was another year when catastrophe events were above average. Swiss Re reported insured losses totalling $119bn, the fifth highest on record, with the rise in insured losses maintaining a long-term trend based on ten year moving averages of 5% to 7% growth annually.

Secondary perils, including floods, were at the forefront, accounting for more than 70% of all insured losses with the European flood Bernd in July causing insured losses above $10bn, the same as Winter Storm Uri in February in the US. The main loss event of 2021 was Hurricane Ida, a category four hurricane which was the second most damaging hurricane to make landfall in Louisiana on record behind Hurricane Katrina in 2005, with insured losses estimated at $30bn-$32bn. There were 21 named storms in the 2021 hurricane season, less than the record 30 in 2020.

The 2021 account will also be affected by insured claims from the conflict in Ukraine, which began in February 2022, most of which we expect to fall into the 2021 account. Exposed classes include aviation, marine, political violence, political risk and trade credit. Lloyd's increased reserves at the 2022 year end to £1.4bn, but 90% is IBNR, in particular from aviation business.

2022 account so far

The first set of estimates for the 2022 account are released at the end of May 2023.

At $125bn, global insured losses from natural catastrophes in 2022 were the fourth highest on record. Each region of the world suffered a major event. Hurricane Ian, which made landfall in Florida on 28 September 2022 (insured losses estimated in a range of $50bn to $65bn by Swiss Re), was the year's biggest loss event, and ranks as the second-costliest insurance natural catastrophe loss ever on record after Hurricane Katrina.

Lloyd's estimates net Hurricane Ian losses at £2bn (compared with Lloyd's December 2022 guidance in the range of $2.3bn to $3bn) which is within its range of modelled outcomes and is equivalent to a market share of the total industry loss of between 3% and 5%. This estimate is lower than the average market share of major recent North American hurricanes since 2017 of 6.5%. As well as Hurricane Ian, major claims included Hurricane Fiona, Australian floods as well as losses from the war in Ukraine.

Today, average annual industry losses from natural catastrophes of more than $100bn are standard. Last year's outcome continued a run of elevated global insured losses since 2017 after a benign 2012-2016 period, reaffirming an average annual growth rate of 5-7% in losses in place since 1992. This trend is expected to continue, driven by growing loss severity on account of rising property and values-at-risk exposures, continued urban sprawl, economic growth and a backdrop of hazard intensification owing to climate change effects.

Guy Carpenter reported that reinsurance market conditions began to harden more materially in 2022 with property capacity becoming constricted since 1 January 2022 and inflation became a significant factor in renewal discussions. Its US Property Catastrophe Rate On Line Index increased by 15% for January through July renewals, the most significant change since 2006, bringing rates back to 2009 levels, while its Global Rate On Line Index increased by 10.8%.

Market conditions in 2023

Insurers and reinsurers are now seeing annual industry losses of $100bn or more as standard with this level having been reached in five years since 1970 and in three of the past five years (2017, 2021 and 2022). Growth in insured values from inflation has boosted demand for cover while supply has been constrained owing to a reduction in risk appetite on the part of capital providers. In addition, interest rate increases to combat inflation have increased the cost of capital and reduced the value of financial assets, further limiting supply. Against this backdrop, at 1 January 2023 property catastrophe reinsurance rates rose to close to 20 year highs.

Primary insurance rate increases have continued so far in 2023 with the Marsh Global Insurance Market Index up 4% in Q1 2023, the same as in Q4 2022. US property rate increases re-accelerated for the second quarter running to 17%, up from 11% the previous quarter. Casualty pricing was up by 2% and financial and professional lines liability insurance rates continued to fall by 13% compared with 10% in Q4 2022.

The pace of rate increases continued to slow for cyber insurance due to increased competition with rates up by 11% compared with 28% in the previous quarter. Lloyd's mandated a new cyber war exclusion, effective from 31 March 2023, in order to manage potential systemic loss. The most competitive area of the market is now Directors and Officers' liability business with more capacity-chasing premium following multiple years of price increases until 2022. Aon's D&O Pricing Index was down 24.9% in Q1 2023.

Marsh's Global Insurance Market Index shows the annual change in rate over the previous four quarters. The compounded rate change since Q1 2017 is now up 59% at Q1 2023.

Guy Carpenter reported that the 1 January 2023 property reinsurance renewals were one of the most challenging for buyers with reinsurers focusing on both attachment points and coverage as well as rate. Its US Property Catastrophe Rate On Line Index increased by 30.1% for January, a new all-time high, while its Global Property Catastrophe Reinsurance Rate On Line Index rose by 27.5%, shown in the chart below, which now brings the index to a similar level to 2006. We also show the compounded rate increase since 2017, which is 65%.

Reinsurance market conditions remained challenging for buyers at the 1 April renewals. Risk appetite for property catastrophe reinsurance remains constrained. Reinsurers continue to push for structural changes and tightened terms and conditions. Limited new capital has entered the market to support property catastrophe risks. In Japan, property cat rates were up 15% to 25%. The impact of rate increases on ceded premiums was mitigated by higher retentions.

At 1 April the supply/demand imbalance remains. Gallagher Re noted "capital supply remained constrained with few signs of fresh capital entering the market and existing reinsurers being impacted by mark to market losses. The hopes of some buyers that new capacity might enter the market at this renewal along with signs of amelioration in hardening Terms and Conditions would emerge were unfulfilled".

With 1 April reinsurance renewals now complete, attention now turns to the mid-year renewals and specifically Florida for 1 July where a very challenging renewal is anticipated for the specialist homeowners writers, particularly in light of the opportunities elsewhere in the market.

Market Outlook

Our view at Hampden is that the supply of capital is the critical factor in the rating environment which drives underwriting margins. The market is not without challenges. Inflation, rising bond yields, climate change, cyber threats, liability reserves, economic uncertainty, sovereign debt, bank deposits and the impact of Ukraine are key concerns, but all these factors contribute to restricted risk appetite which is a favourable backdrop. Premiums overall and across most classes continue to rise relative to exposure enabling catastrophe losses to be absorbed and still make an underwriting profit. We remain positive in our market outlook for favourable market conditions to continue throughout 2023.

Summary financial information

The information set out below is a summary of the key items that the Board assesses in estimating the financial position of the Group. Given the Board has no active role in the management of the syndicates within the portfolio, the following approach is taken:

A) It relies on the financial information provided by each syndicate.

B) It calculates the amounts due to/from the quota share reinsurers in respect of their share of the profits/losses as well as fees and commissions due.

C) An adjustment is made to exclude pre-acquisition profits on companies bought in the year.

D) Costs relating to stop loss reinsurance and operating costs are deducted.

Year to 31 December 2022

Year to 31 December 2021

Summary balance sheet (excluding assets and liabilities held by syndicates)

See Note 28 for further information.

Cash flow

Change in Accounting Policy to UK GAAP

Helios is currently required to prepare its financial statements using International Financial Reporting Standards (IFRS) The implementation of the IFRS 17: Insurance Contracts standard came into force for accounting periods commencing on 1 January 2023 for listed insurance companies in the UK. For Helios it will not be possible to adopt IFRS 17 as Lloyd's has yet to mandate that all syndicates prepare their financial information using IFRS 17 and as Helios relies on the syndicates supported to provide the necessary financial information, Helios is considering adopting an alternative accounting framework.

For illustration purposes the table below presents the changes that would be necessary if the Group were to adopt UK GAAP. The single most significant change is to the approach of recognising income is in respect of the treatment of Negative Goodwill. Negative Goodwill arises on the acquisition of LLV's when the consideration paid is less than the fair value of the LLV acquired. Under UK GAAP the negative goodwill will not be recognised in full immediately but will be amortised over three years in the future.

The table below shows the potential impact on the 2022 and 2021 financial statements of adopting UK GAAP.

Impact of UK GAAP on Amortisation of Negative Goodwill

Further information will be provided when the new accounting policy is adopted.

Consolidated statement of comprehensive income - Year ended 31 December 2022

The loss attributable to owners of the Parent, the total comprehensive income and the earnings per share set out above are in respect of continuing operations.

The notes are an integral part of these Financial Statements.

Consolidated statement of financial position - At 31 December 2022

Company number: 05892671

The Financial Statements were approved and authorised for issue by the Board of Directors on 25 May 2023, and were signed on its behalf by:

Martin Reith

Chief Executive Officer

25 May 2023

The notes are an integral part of these Financial Statements.

Parent Company statement of financial position - At 31 December 2022

Company number: 05892671

The Financial Statements were approved and authorised for issue by the Board of Directors on 25 May 2023, and were signed on its behalf by:

Martin Reith

Chief Executive Officer

25 May 2023

The notes are an integral part of these Financial Statements.

Consolidated statement of changes in equity - Year ended 31 December 2022

The notes are an integral part of these Financial Statements.

Parent Company statement of changes in equity -Year ended 31 December 2022

The notes are an integral part of these Financial Statements.

Consolidated statement of cash flows - Year ended 31 December 2022

Cash held within the syndicates' accounts is £15,046,000 (2021: £8,446,000) of the total cash and cash equivalents held at the year end of £25,300,000 (2021: £24,624,000). The cash held within the syndicates' accounts is not available to the Group to meet its day-to-day working capital requirements.

Cash and cash equivalents comprise cash at bank and in hand.

The notes are an integral part of these Financial Statements.

Parent Company statement of cash flows - Year ended 31 December 2022

Cash and cash equivalents comprise cash at bank and in hand.

The notes are an integral part of these Financial Statements.

Notes to the Financial Statements - Year ended 31 December 2022

1. General information

The Company is a public limited company listed on AIM. The Company was incorporated in England and is domiciled in the UK and its registered office is 40 Gracechurch Street, London EC3V 0BT. These Financial Statements comprise the Company and its subsidiaries (together referred to as the "Group"). The Company participates in insurance business as an underwriting member at Lloyd's through its subsidiary undertakings.

2. Significant accounting policies

The principal accounting policies adopted in the preparation of the Group and Parent Company Financial Statements (the "Financial Statements") are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The Financial Statements have been prepared in accordance with UK adopted IAS and interpretations issued by the IFRS Interpretations Committee ("IFRIC") as adopted by the UK international accounting standards, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

No statement of comprehensive income is presented for Helios Underwriting plc, as a Parent Company, as permitted by Section 408 of the Companies Act 2006.

The Financial Statements have been prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss.

Use of judgements and estimates

The preparation of Financial Statements in conformity with IFRS requires the use of judgements, estimates and assumptions in the process of applying the Group's accounting policies that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge of the amounts, events or actions, actual results may ultimately differ from these estimates. Further information is disclosed in Note 3.

The Group participates in insurance business through its Lloyd's member subsidiaries. Accounting information in respect of syndicate participations is provided by the syndicate managing agents and is reported upon by the syndicate auditors.

Going concern

The Group and the Company have net assets at the end of the reporting period of £117,178,000 and £130,278,000 respectively.

The Company's subsidiaries participate as underwriting members at Lloyd's on the 2020, 2021 and 2022 years of account, as well as any prior run-off years, and they have continued this participation since the year end of the 2023 year of account. This underwriting is supported by funds at Lloyd's totalling £99,840,000 (2021: £48,913,000), letters of credit provided through the Group's reinsurance agreements totalling £27,818,000 (2021: £37,032,000) and solvency credits issued by Lloyd's totalling £1,331,000 (2021: £239,000).

The Directors have a reasonable expectation that the Group and the Company have adequate resources to meet their underwriting and other operational obligations for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.

International Financial Reporting Standards

Adoption of new and revised standards

In the current year, the Group has applied new IFRSs and amendments to IFRSs issued by the IASB that are mandatory for an accounting period that begins on or after 1 January 2022.

Amendments to IFRS 3 "Business Combinations" - Reference to the Conceptual Framework. IFRS 3 is updated so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify the liabilities it has assumed in a business combination. Lastly, they add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

Amendments to IAS 16 "Property, Plant and Equipment". The changes introduced amend the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Amendments to IAS 37 "Provisions Contingent Liabilities and Contingent Assets". The changes specify that the "cost of fulfilling" a contract comprises the "costs that relate directly to the contract". Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts.

Annual Improvements to IFRS Standards 2018-2020 Cycle. The pronouncement contains amendments to four International Financial Reporting Standards (IFRS 1, IFRS 9, IFRS 16 and IAS 41) as result of the IASB's annual improvements project.

There is no material impact on the accounts from adopting the above for the year ended 31 December 2022.

New standards, amendments and interpretations not yet adopted

A number of new standards and amendments adopted by the UK, as well as standards and interpretations issued by the IASB but not yet adopted by the UK, have not been applied in preparing the Consolidated Financial Statements.

The Group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of UK endorsement. The Group continues to review the upcoming standards to determine their impact.

IFRS 9 "Financial Instruments" (IASB effective date 1 January 2018) has not been applied under IFRS 4 amendment option to defer until IFRS 17 comes into effect on 1 January 2023.

IFRS 17 "Insurance Contracts" (IASB effective date 1 January 2023).

IAS 1 "Presentation of Financial Statements" - classification of liabilities as current or non-current (IASB effective date 1 January 2023).